Tax breaks are an essential part of homeownership. They incentivize more US residents to purchase by lessening the financial burden of homeownership. To take advantage of the available tax breaks, you first have to understand what is available to you and what qualifies as a tax break that can maximize your savings. With a wide variety of tax breaks for homeowners available, there’s no reason you shouldn’t be claiming them on your return.
Two Types of Deductions: Standard & Itemized
The two main types of tax deductions are standard and itemized deductions. Standard deductions are available to all filers and are based on set amounts depending on how you file. Single and married individuals filing separately receive a standard deduction of $12,550 while married couples filing together will receive a standard deduction of $25,100. Itemized reports are when you file your own itemized deductions and forgo the standard rate. To take full advantage of your itemized deductions, make sure that the total amount of your itemized deductions is larger than the standard deduction that is available to you.
10 Tax Breaks for Homeowners and Buyers
There are a wide variety of available tax breaks that can be used on your itemized deductions. To ensure that you get the most out of your tax returns, itemize as many deductions as possible.
1. Property Taxes
Property taxes are tax deductible and can be included in your itemized tax report. A married couple filing jointly can receive up to $10,000 off of their property taxes and a separate or single filer can receive up to $5,000 off of their property taxes.
2. Mortgage Interest
Being able to deduct mortgage interest is one of the most important tax breaks for homeowners to take advantage of. Mortgage interest can quickly add up and make the difference for a prospective homeowner in being able to afford the mortgage. Thankfully, a single filer or married couple filing jointly can claim up to $750,000 and a married couple filing separately can claim up to $350,000 for each party.
3. Home Equity Loan Interest
Similar to mortgage interest, the interest paid towards your home equity loan or HELOC can be itemized as a tax deduction. The only difference is that you can only access this deduction if the money from the home equity loan was used for home improvement.
4. Discount Points
Discount points are an option for homeowners where they may purchase these discount points to decrease the interest rate on their mortgage. You may deduct the cost of the discount points but loan origination points are not included.
5. Mortgage Insurance
Some loaners will require you to pay for private mortgage insurance or PMI to protect the lender from liability if you are not able to pay for your mortgage. This too may be included on your itemized tax return.
6. Necessary Home Improvements
Necessary is the keyword in this tax break for homeowners. These “necessary” home improvements are typically for home improvements that benefit a disabled person or are some sort of medically related improvement. While it is not completely limited to medical improvements, it is difficult to make the case for other types of home improvements.
7. Capital Gains
When you sell the home that you own, hopefully, you will have made a profit. These capital gains can be included on your itemized tax return but only if the home was your primary residence for two out of the five previous years. A married couple filing jointly can receive up to $500,000 while an individual filer can receive up to $250,000. This is one of the largest tax breaks for homeowners and should be considered when selling your home.
8. Home Office Expenses
If your primary place of work is at your residence, you may qualify for a home office expense deduction. This deduction does not apply to those who sometimes work from home or have a home office but rather to those who operate a business primarily from your residential business space.
9. Deduction of Rental Expenses
If you choose to rent out a portion of your home then you can qualify for a deduction from the cost of rental expenses. Instead of directly deducing these expenses from your itemized report, the cost will be subtracted from your taxable rental income. A rental expense can be considered an expense that is related to operating and maintaining the rented portion of your home.
10. Credits for Energy-Saving Improvements
Both the federal and state governments are adamant about providing incentives to get homeowners to have energy-saving improvements installed on their property. Tax breaks for homeowners are no exception as the federal government offers a 30% tax credit for the cost of energy-efficient equipment. Currently, in 2022, an additional $500 tax credit is offered for the cost of installing energy-efficient appliances and upgrades to things like doors, roofs, and windows.
11. First-Time Homebuyer Tax Credit
The first-time homebuyer tax credit is a government-funded program that assists first-time buyers to pay for their new homes by reducing the amount of taxes owed. It does not have to be your first time purchasing a home to qualify. You are considered a first-time buyer as long as you haven’t owned a home or have been a cosigner, in the past three years. Those who are eligible can potentially receive a tax credit worth up to 10% of the home’s purchase price with a maximum threshold of $15,000.
Maximize your Tax Savings with Federal Hill Mortgage
By taking full advantage of the available tax breaks for homeowners, you could potentially save thousands of dollars on your tax returns. Using all of the tax breaks listed above can be tricky as the complexities of filing for deductions can often be daunting to someone who is not familiar with itemizing their deductions. Thankfully, Federal Hill Mortgage is here to help. Our team of mortgage professionals will walk you through every step of the mortgage process offering expert guidance throughout. If you would like to ensure that you maximize your tax savings, call or contact the team at Federal Hill Mortgage today to get started.